Comment by qeternity | Hacker News Reader

Comment by qeternity | Hacker News Reader

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> Banks would then lend that money out to earn interest. We then basically decided this was too conservative a strategy so we have fractional reserves, meaning if you have $100,000 in deposits you might be able to lend out $1 million.

This is entirely wrong. Fractional reserve banking is what allows lending. How do you envision a bank with $100k lends out $1m? What fractional reserves mean is the opposite: if you have $1m of deposits you can lend out $900k and only be required to keep $100k of reserves to meet withdrawal demands. This is the “fractional” bit of fractional reserves.

Honestly HN please, go and learn the basics before penning comments that lack basic understanding.

Is it possible both things are true?

From https://en.m.wikipedia.org/wiki/Fractional-reserve_banking

  Fractional-reserve banking is the system of banking operating in almost all countries worldwide,[1][2] under which banks may hold liquid assets representing only a portion of the deposits that they are liable to pay.[3] These liquid assets, known as reserves, may include cash in the bank or balances in the bank's account at the central bank. The country's central bank determines the minimum amount that banks must hold in liquid assets, called the "reserve requirement" or "reserve ratio". Most commercial banks hold more than this minimum amount as excess reserves.

The page does mention something similar to what the parent comment was saying:

  When a loan is made by the commercial bank, the bank is keeping only a fraction of central bank money as reserves and the money supply expands by the size of the loan.[5] This process is called "deposit multiplication".

No, if I borrow money from the Fed to lend out, it’s the same as taking in deposits. Banks borrow money from their depositors, and lend to their borrowers.

What OP said is completely wrong.

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